What is Factoring and How it works?

Meaning / Definition of Factoring: 
Factoring is a basically an agreement between two firms in carrying an financial transaction whereby a business job sells its Accounts Receivable(invoices) to a Third party company (called a factor) at an discount rate/interest for such service provided.

Factoring Process and Operation.

The Process of Factoring works like this: 
Steps how Factoring works
When a customer firm places order with the supplier firm supplies for credit the goods and issues Invoices(AR), later to get an immediate funds for funding its current obligation or other requirements like working capital it request financing, where the Factoring Firm comes into play its role by financing against the cash against receivable/invoices by usually charging an fees in the way of discount. interest, where later part the client will make the payment directly to the Factoring Firm.


In this way all different types of factoring business firm, select the clients and makes and provide economic value by financing businesses.